Linkfest 2007

Cruel January! Investors counting on Fed cuts were delivered "bad" news on Friday, with a surprise gain of 167k new jobs. The report sent both stocks and bonds tumbling.

Talk about the soft prejudice of low expectations: In a nation of 300 million people, with a full time (non-farm) workforce of 140 million, rustling up a mere 167,000 new jobs is ever so slightly ahead of population growth. If we have been conditioned to think of that as robust growth, we are really up the creek sans paddle. 

Barron’s Trader column (in the new smaller Barrons) noted that "the week’s steep slide in oil and copper prices, failed to mollify investors. Without paying too much heed to the annual flip of the calendar, performance-chasing fund managers who had to run after the 2006 rally now get a fresh 12-month window to earn their keep. And they could — for now — wait for better openings to pounce."

The Dow slipped half a percent, the S&P500 fell 0.6% — the 2nd decline in 3 weeks for both — while last year’s laggard, the Nasdaq, started the year off on the right foot, up 0.8%.

On a personal note, these fests have been running increasingly long — and are taking more time to write than they used to — my New Year’s Resolution is to throttle the linkfests back a bit to a more managable size this year!

Oh, well, we still have time for one more ginormous festival to start off the new year:


• WSJ: After the Dow’s 2006 Rise, Investors Ponder a Correction; In a reversal of 2006, the Dow and SPX were the worst performers while the Nasdaq made gains

• The first official trading session featured a pretty ugly Intra-Day Reversal

•  U.S. regulators grow alarmed over ‘hedge fund hotels‘ Just as VCs during the technology boom
created incubators to help entrepreneurs start businesses, so too a few big
investment banks are offering young ambitious hedge fund traders a
temporary home, complete with receptionists, espresso machines and
consultants to help manage them. And it has U.S. regulators growing increasingly alarmed;

Global Returns in 2006 Revisited

• How important has liquidity been this past year? The WSJ writes: Investors are Riding The ‘Cash’ Rapids — There’s plenty of money available, and much of it is in riskier markets; also, Money Is Everywhere, But for How Long?

•  Mark Hulbert on January’s Predictive Powers

Dow Theory Suggests Stock Worries Ahead (Barron’s)

• I’ve been playing with the WSJ’s updated Markets Data Center: Its no Bloomberg terminal, but its very complete — and a heckuva lot cheaper.

• The WSJ looks at social networking stockpicking sites: A New Way To Rate Stock Tips   I much prefer James Altucher’s Stockpickr: More data, less chatter (say it with a Boston accent: it rhymes!)

Five Sector Funds You’ll Need in 2007

Profits Likely to Slow in ’07 (WSJ)

•  Are Bonds a viable alternative to stocks in 2007?   

• Barron’s notes insiders collectively sold 55 shares for every
one they bought int he 1st 2 weeks of December:
Insiders were big Sellers (If no Barron’s go here) Gee, you think they could have waited 2 weeks to avoid the tax bite in April.

He’s Jack! Nardelli’s Ouster Shows GE’s Welch Picked Right With Immelt (Bloomberg)   

James Dines’ The Dines Letter is Marketwatch’s Investment Letter of the Year 2006

• Tony Crescenzi on Seven Reasons to Downplay the Yield Curve (I obviously disagree)   

• Does the Markets’ 4-year win streak mean a decline in 2007? It turns out there is no statistical support for that thesis.

The Wall Street Self-Defense Manual (Blodget)

•  The Price to dividend ratio.

Is your Boss a liar? That’s too bad — its bad for productivity, morale — and profits



What Wall of Worry?:

• The NYT: Job Growth Is Strong, Surprising Economists (and a podcast); Nouriel Roubini on Leading and lagging indicators of the labor market;  Also, Jobs Data Brighten Economic Picture (free WSJ) BLS data is always subject to revision, but if it stand, then ADP,, and me all got this one wrong.

ADP claims that December is an especially perilous month to compare the two reports (because ADP’s numbers have to be adjusted for end-of-year tax accounting in ways that the Labor Department does not). ADP is, after all, a payroll processing firm.

The Goldilocks Recession?

• Whatever wage gains there have been are getting eaten up by exploding Health Care costs:    

Why Manufacturing Shows Resilience:  U.S. manufacturing is showing surprising resilience in the face of a sharp slump in autos and housing, and in the coming year it is expected to expand roughly in line with the overall economy.   

Copper prices tumble after U.S. construction spending drops (See also: Copper, commodities sell-off may signal slowdown)

• ECRI — which has an admirable track record — says Says Recession ‘No Longer a Serious Concern’

Could the world shrug off U.S. Recession Concerns? Economic might may be shifting to old stalwarts

Economy Poised For ’07 Rebound, Forecasters Say (WSJ)  U.S. Trust’s Robert McGee was the most accurate forecaster in the 2006 second half; Here’s what he sees in 2007. See also Economists Cautiously Optimistic About 2007

• Stephen Roach’s Lessons of 2006

The Baltic Dry Index (BDI) shows global growth remains strong

• Three Factors for ’07: Housing, Fed Moves And Capital Spending (WSJ) 

How Business Trounced The Trial Lawyers;

RETAIL/Consumer Spending

I keep wanting to retire this topic, but it keeps staying relevant:

Retail Sales Roundup

• What does it mean now that holiday Retail sales have dissappointed? "Holiday retail sales, once considered a barometer of the health of the economy, are no longer a crystal ball." Holiday-Sales Figures Leave Big Gaps (Forecast: The bullshit machine will shift into overdrive by the spring). Also, Holiday-Spending Estimates Decline;

Flat-Panel TV Jam:  Now
that flat-panel television sets are the biggest hit in consumer
electronics, manufacturers are wondering how to put off the forces that
could turn them into low-margin commodities; In December, Best Buy and Circuit City sales rise;

• On a related note, the WSJ looks at the Battle for the Living Room (free)

The Whole Foods Story (Slate)

• Ron Lieber’s 2006 Loyalty Report: frequent-flier miles, cash rebates and merchandise rebates, etc.

Money Saving Tips for Life


• There’s been a lot of Spec construction on Long Island;  Be sure to check out all the comments from builders and developers — quite informative.

• Caroline Baum suggests that Housing Data Yield a False Sense of Complacency   

• Is the Economy poised to shake off housing slump? Or is Lennar warning of further debacles?

• The Mortgage Lender Implode-O-Meter; also: Sub-prime lender Ownit seeks bankruptcy protection

• The Historical chart of Residential Investment Cycles, 60 Years implies that the housing slowdown is still relatively young — unless this is repeat of the 1995 scenraio

• And for you hard core geeks, Monetary Policy and the house Price Boom Across U.S. States;



The Fed was a big mover of markets this week, between the FOMC minutes and the speechifying:

Parsing the Fed minutes, (Video with Greg Ip and Jon Hilsengrath)

Fed Officials Move Toward a Neutral Stance on Rates

Pimco’s Gross sees fed funds at 4.25% by year-end; Despite jobs growth, Gross thinks the Fed’s biggest need is stoking GDP;

• Over the past 22 years, Jeff Kleintop, of PNC Wealth Management has tracked price increases with his holiday inflation gauge: the Christmas Price Index. Its up 3.5%, considerably less than last year’s 9.5%.



New Year’s Resolutions for Irrational Investors

Investors Greet New Year With Ambivalence

Three Pervasive Myths of Trading Psychology

• Know thyself:  Self Awareness and Trading      



• The WSJ goes all YouTube on us with embedded flash video; Do it yourselfers can go to Hellodeo — a new site that allows real time webcam embedding of video — (no more ripping and uploading).

• More headaches for the networks:  News at Seven automatically generates a virtual newscast pulled
from stories, images, videos and blogs all linked by a common news

• BARRON’S Mike Santoli kicks off a new column, Streetwise (if no Barron’s, go here)

• Has Malcolm Gladwell — author of Blink and the Tipping Point — finally jumped the shark? His defense of Enron as having done nothing wrong is, well, indefensible, and Joe Nocera of the NYTimes calls him on it: Tipping Over a Defense of Enron (and podcast) Nocera is relatively gentle on him — there was a much harsher takedown in the NY Observer in Oct ’06 — but there seems to be a wee bit of a Gladwell backlash developing;

2006: Energy Year in Review (Thanks, Paul!)

The Land of Rising Conservation; On a related note, this interview with Power Co AES’ cheif is fascinating: A Future With the Wind

Power-Sipping Bulbs Get Backing From Wal-Mart; See also Wal-Mart readies large-scale move into solar power;      


Can Bush’s Tax Cuts Survive?

• I got slaughtered by AMT last year: Senators seek repeal of alternative minimum tax

Rep. Frank Opens Door to Business: Proposed Trade-Off Of Agenda Goals May Ease Rancor; and Business Mobilizes to Defend Turf – Firms Plot Campaigns to CounterEffects of Democrats’ Agenda   

Stem-Cell Research is a test for Bush, new Congress

House Passes Ethics and Budget Measures;

• The War of the World: Twentieth-Century Conflict and the Descent of the West (for those interested in less serious war analyses, there’s always Doonesbury) And what might be the most unexpected book, an infantry team leader with the 3rd Stryker Brigade Combat Team of the 2nd Infantry Division pens a book of war poetry: Here, Bullet; See also: The horror, the horror of Iraq, in poetry

• Opinion:  Our Iraqi Mistake

Technology & Science

Science news story of the week: A vast ice shelf — more than 40 square miles in extent – over five times the size of central London —  collapsed in the Arctic; It was located off a Canadian Island; Global warming issues aside, a large city floating south form the North Atlantic poses a shipping peril;

How to go to M.I.T. for free

• USA Today says Apple’s new iPod could bolster music dominance;  Apple is entangled inseveral Patent and anti-Trust lawsuits (disclosure: I am on the BoD of one such plaintiff).

• The Macworld rumors have already started to fly: Macworld predictions for next week;

• Cringely’s tech forecasts for 2007:  #11) The year will see two kinds of large cap tech and media companies: those that destroy shareholder value quickly by acquiring companies and those that destroy shareholder value slowly by not acquiring them. (Disclosure: I am on the BoD of

• Very cool BBC documentaries: The Secret Life of Machines is up at Google Video;

• A New Way to Gauge a Start-Up’s Worth

• Who knew this was even a hobby? For Extreme Tree Hunters, Redwoods Rule   

Mindball, the new game where you move a ball with your mind (Video)

• Microsoft gets some good and bad reviews:

Bold Redesign Improves Office 2007

-Zune is already a failure, thanks to the RIAA, sez Bob Lefsetz (see # 10 of his 2007 Predictions)

Also, see the WSJ’s Rob Guth on Microsoft’s evolving strategy

• What carbon emissions are doing to the ocean: THE DARKENING SEA

• The Twists and Turns of History, and of DNA; Also, The Science of Evil

• YouTube’s new owners may yet run into Copyright troubles after their Piracy vow went down the YouTube; Also, a papparazzi video is casuing YouTube some trouble: Its of Super Model
Daniela Cicarelli (ex-wife of soccer great Ronaldo) frolicking on the
beach with her Merrill Lynch banker boyfriend;  A Brazilian court ordered the site shut down

until it
removes a video from its site — but as fast as the company
removes the video, Brazilian users keep uploading fresh versions! 

Music Books Movies TV Fun!

•  We noted James Brown’s passing last week. After that, I started poking around and discovered a live James Brown concert available for free download at NPR.

Norah Jones has a new album, Not Too Late, coming out late this month. You can stream the first single here, or watch a video here.

• Lots of live streaming concerts, via NPR.

• In 2006: Album Sales Plunged, Digital Downloads Soared   

• I have quite a few Books in the Queue; Also, Reminiscences of a Stock Operator is now in the public domain, and you can download a PDF of it for free   

•  facinating:  A Billionaire Divorce — And Not a Lawyer in Sight

Hey parents!: Allowance 2.0

God Denies Talking to Pat Robertson; Supreme Being Calls Televangelist ‘Delusional’   

• This will be the funniest thing you see today: Spiders On Drugs

Another winter weekend, and its already 67 degree! The ragtop comes out of the garage again! My collectors insurance ($223) is for only 3,000 miles a year, and if the weather stays this nice in January and February, I may surpass it!

Welcome back to RM, George!

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What's been said:

Discussions found on the web:
  1. Eclectic commented on Jan 7

    Per your comments:

    “In a nation of 300 million people, with a full time (non-farm) workforce of 140 million, rustling up a mere 167,000 new jobs is ever so slightly ahead of population growth.”

    …..forget the population growth theme, 167k is still only .0012 (12 sheep counted in a flock of 10,000) parts of the total.

    Whether employment is increasing or not, this metric for Dec 2006 alone won’t prove it.

  2. Steve commented on Jan 7

    “BLS data is always subject to revision, but if it stand, then ADP,, and me all got this one wrong.”

    Why does everyone keep saying this about

    I haven’t seen anything that suggested Monster predicted a job loss in December.

    Here’s the article Roubini cited:

    But here’s what the article said:
    Monster said its Employment Index fell 8 points to 167, down from 175 in November. It was 145 a year ago, reflecting a 15 percent increase for 2006.

    “The indications are that job growth will continue to moderate in the beginning of 2007 but still be relatively healthy,” said Steve Pogorzelski, group president of Monster Worldwide (MNST.O), parent company of Monster. “We see unemployment rates continuing to remain at historically low levels.”

  3. Mr. X commented on Jan 7

    For your edification, Barry, the word ‘data’ should be pronounced as in ‘dayta’, so what you say below:

    “More data, less chatter (say it with a Boston accent: it rhymes!) ”

    doesn’t hold. I know, I know, there are those who pronounce it like ‘chatta’. But find me a single reputable scientist (PhD or MD) who pronounces ‘data’ like ‘chatta’, and I’ll buy you lunch at the most expensive restaurant in Beantown.

  4. Alaskan Pete commented on Jan 8

    I believe the original phrase was “the soft bigotry of low expectations”, not the soft predjudice.

    -Alaskan Pete (currently wintering in SoCal and popping in for a rare appearance)

  5. Eclectic commented on Jan 8

    Roubini said employment was (paraphrasing him) “a lagging or at best a coincident indicator.”

    I continuously struggle with the chicken or the egg coming first argument regarding the economy and employment/wages.

    For if we were to assume that no recession could come when employment and wages are still increasing, then we’d never have had a recession. Both BLS and ADP tell us what today (approximately) looks like… they can’t tell us what 6 months from now will look like.

    No, I think Roubini and others with the same perspective are correct. Whatever the economy does, employment and wages will still lag it and tell us about it later.

    At present, the economy is still in very good shape because none of the macro events that could slow it down have occurred… and might not for yet a long while.

    -no wholescale derivatives failures
    -no housing blowups that are more than merely localized events
    -no new acts of terrorism on U.S. soil
    -no continuation of what was a relatively rapid P/E compression… in fact I think P/Es are a tad higher now than a few months ago.
    -no visible break in corporate earnings

    About the only actual metric that’s demonstrated a slowdown is the decline in GDP recently, and it has no sting for the public investor yet, if ever it will, because it’s too easy to write it off as being temporary in light of these other metrics holding up.

  6. Barry Ritholtz commented on Jan 8

    Eclectic wrote: “the only actual metric that’s demonstrated a slowdown is the decline in GDP recently”

    You need to look at other metrics more carefully:

    * Transportation companies are the early warnings for consumer spending. In Q4 of 2006, many of the Transports have announced declining shipping volumes and decreased their outlooks for 2007. When firms such as Federal Express, UPS, Yellow RoadWay – the leaders of the industry – say they see problems coming, we pay attention. Note also that the American Trucking Associations’ for-hire Truck Tonnage Index plunged 3.6 percent in November, following a 1.9 percent drop in October. The index has decreased 8.8 percent compared with a year earlier, marking the largest year-over-year decrease since the last recession.

    * Holiday Retail Sales slipped below expectations. It’s not just retailing giant Wal-Mart. Discounters, electronic stores, department stores, and mall based retailers delivered a holiday shopping season that was described as disappointing and lackluster. According to MasterCard Analytics (based on cash, check and MC purchases), holiday sales increased only 3% this year. That’s the weakest since 2002. And with inflation running about 3%, this means that Real Retail Sales (after-inflation) were flat year over year.

    * Durable Goods have also been on a downswing. Durable goods orders fell by 1.1% in November, according to a Commerce Department report. It was the second consecutive monthly drop in durables orders excluding transportation, and the fourth decline in the last five months.

    * Manufacturing Indices have shown weakness accelerating: ISM manufacturing index slipped below 50 (to 49.5) for the latest reporting period of November. Data below 50 reflects contraction. While some economists are looking for a recovery in December, the data coming out of the regional Feds implies further deceleration.

    * Mortgage Foreclosures have been accelerating, especially in the sub-prime areas. While not yet at record levels, we see no signs that foreclosures are slowing down. Indeed, as the interest-only and variable mortgages issued in 2003 and 2004 “reset,” we would expect to see foreclosures accelerate.

    * Automobile Sales have been also pointing towards a hard landing: The “dealer doldrums indicator” suggests that the economy is cooling rapidly. Considering how many autos were paid for or financed out of home equity, this should come as no surprise. In previous cycles, this measure (a rolling 12 month rate of change in sales by new-car dealers) has a good track record forecasting recessions.

    * Business CapEx spending has slowed: Business investment in new equipment and software fell in Q2 for the first time since the recovery began. Many of the forecasts of a soft landing / Goldilocks scenario call for business spending to pick up as the consumer begins to slow. So far, we see little evidence of this happening.

    Transports, Retail sales, Durable Goods, Manufacturing, Foreclosures, Autos, Business Capex: It reads like a laundry list of the most significant sectors of the US economy. All of these early indicators are flashing danger.

  7. Leisa commented on Jan 8

    BR writes: “Transports, Retail sales, Durable Goods, Manufacturing, Foreclosures, Autos, Business Capex: It reads like a laundry list of the most significant sectors of the US economy. All of these early indicators are flashing danger.”

    The retort is that we are a service economy and these things don’t matter as much any more! At least to be well-rounded and well-grounded let’s add the ISM non-manufacturing survey and watch for cracks.

    Apparently in my area (Richmond, VA) electricians are rather direly needed due to commercial construction. (Anectodal, but noteworthy).

  8. Eclectic commented on Jan 8

    Sorry, BR… my intent really was to say that GDP was the only metric so far that the public might’ve paid attention to when the figure turned down (it seems that the major non-fin media did cover the topic when reported). However, I’m not even sure the public paid that much attention to it.

    All the other metrics we agree about, but we see them as though we were watching a video the second time of a train heading toward a bridge that’s out, and a crash, and since we’ve seen the video before, we know the outcome.

    The public is in the dining car having a party and congratulating themselves on their wisdom (and partly thumbing their noses at our warnings), and they’re enjoying the journey… and they haven’t seen the video.

    Of course the reality is that neither of us have seen the video either, because it doesn’t exist.

    Old subject:

    Back to the ADP/BLS discussion. My observation at present is that ADP is likely to be slower than BLS to indicate an employment downturn and equal to BLS in indicating upturns. Why?

    Because although they do payroll accountancy for 1:6 jobs in the U.S., they’re still somewhat concentrated in the upper middle class type of worker base.

    That base (clean blue collar and white collar) I think probably declines in a sticky fashion, because employers are slow to dismiss their highly trained work force in hopes of an economic rebound, but when the economy is on the upswing, they increase their work force again in lock-step with the overall U.S. employment base.

    Thus, you’d expect ADP sampling to diverge from BLS in periods when employers were slow to recognize reversing trends or hesitant to react to them too quickly.

  9. Eclectic commented on Jan 8


    “Thus, you’d expect ADP sampling to diverge from BLS in periods when employers were slow to recognize reversing trends [that were worsening*] or hesitant to react to them too quickly.”

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